Paying off debt is one of the biggest steps a person can take toward achieving greater financial security. However, once they get out of debt, they may wonder what comes next. Many make getting out of debt their focus, but when it happens, they become complacent. To avoid falling back into those old patterns, follow these steps for a debt-free life.
Set a Budget and Stick To It
After working hard to eliminate debt, a person may be tempted to relax where their finances are concerned. While it’s okay not to worry so much about money, if budgeting falls by the wayside, it’s easy to end up back in debt. Ease up a little bit, increase spending in certain categories, but don’t stop budgeting.
Build an Emergency Fund
Now that those debts are paid off, there’s likely to be a bit of extra money at the end of the month. Use it to create or add to an emergency fund. These powerful financial tools serve as an insurance policy against emergencies such as medical bills and job losses. The experts suggest setting aside at least six months’ living expenses, including rent, groceries, and other costs of living.
Increase Retirement Contributions
Many people slow or stop their retirement account contributions while climbing out of debt. While that’s acceptable, it’s important to start contributing again once the debt is gone. Putting in fifteen percent of one’s income is a great goal to strive for as far as retirement savings are concerned. If an employer offers 401(k) matching, make contributions as often as possible. Once the 401(k) is maxed out, consider opening another retirement account such as an IRA.
Plan for the Future
Now that there’s a bit more money floating around, it’s time to consider some long-term financial goals. For instance, those who rent should consider saving for a down payment on a house. If there are children at home, set aside some money for college. Come up with a plan that will make those financial goals easier to reach.
Getting out of debt is hard work, but it’s immensely satisfying. Once it happens, the borrower is in a position to do more enjoyable things. Take advantage of these debt recovery tips and enjoy the results!